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Australia economy improves, but recession looms

Posted on: May 31, 2009

AFP – Wednesday, May 27

SYDNEY (AFP) – – Australia’s economic outlook improved slightly in March, but remained “deep in recession territory”, according to figures released Wednesday.

The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, rose to -5.1 percent from -6.0 percent in February, which was its worst reading since 1982.

The figure continues a consistent run of negative readings since the +0.5 percent seen in September, but was the first substantive rise in more than a year, said senior Westpac economist Matthew Hassan.

“The slight improvement in the index is consistent with indicators suggesting the pace of contraction in the global economy has also eased in recent months,” said Hassan.

“However, recovery still looks to be a long way off. The index remains deep in recession territory, implying a likely further contraction in activity through the middle of 2009,” he added.

An improvement in the equities market and a spike in housing approvals was behind the advance, Hassan said, with the All Ordinaries index posting its strongest monthly gain since June 2000.

Australia recorded its first quarter of negative growth in eight years in the final three months of 2008.

Most economists predict a similar result in the first three months of 2009, which would officially put Australia in recession, usually defined as two successive quarters of negative growth. Results for the first quarter are due next Wednesday.

Hassan said the index would still take up to four months to return to levels consistent with positive growth even if there were improvements similar to those seen in March.

“A recovery in the real economy is unlikely before the December quarter at the earliest,” he said.

Falling commodity prices, productivity, overtime worked and corporate profits had all underpinned a marked slide in the index since September, with a weakening labour market the main contributor, he said.

Australia’s jobless rate is at 5.4 percent and official government figures this month forecast it to peak at 8.5 percent in mid-2011.

Hassan said he expected the central bank to again hold fire at its June 2 meeting, keeping interest rates at a 49-year low of 3.0 percent.

However, it was likely to resume cutting them by August, with further easing of one percentage point expected in the next six months, he said.

The Reserve Bank of Australia has slashed interest rates by 425 basis points since September, as the government launched stimulus measures worth more than 50 billion dollars (33 billion US) to kickstart spending.


1 Response to "Australia economy improves, but recession looms"

“People who cry wolf obviously don’t have a clue what the real world is like…wake up and do some research instead of listening to idiots” Paul Orberson.

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